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How to Negotiate A Severance Package

A friend of mine was recently let go from her job of many years (she recently wrote about it in a two-part series, part one [3] and part two [4]). It’s been difficult watching the news and hearing about the millions of jobs lost in the last year but until one of your friends is fired, it really doesn’t sink in how weak our economy is. It’s one thing to see your 401(k) lose value, an account I can’t touch for forty years, it’s another to see one of your friends lose their job.

The first thing that came to my mind was whether or not she could negotiate a better severance package. She explained that because her employer was a non-profit, she had no legal recourse. I was surprised but upon further research, I learned that there are no laws specifically covering severance. There are laws that cover unfair termination, such as the Fair Labor Standards Act and similar state laws, and severance is mostly seen as a way to placate employees so they don’t consider filing a lawsuit. However, despite this, you can still negotiate a severance package.

The Worker Adjustment and Retraining Notification Act (WARN)

There was one law that may have been helpful to know and that’s The Worker Adjustment and Retraining Notification Act (WARN) [5] that states most employers with 100+ employees must provide notification 60 calendar days in advance of plant closings and mass layoffs. She wouldn’t have qualified but it’s an important law to know. “Mass layoffs” isn’t ambiguous either, it’s “reduction in force which— (A) is not the result of a plant closing; and (B) results in an employment loss at the single site of employment during any 30-day period for— (i) (I) at least 33 percent of the employees (excluding any part-time employees); and (II) at least 50 employees (excluding any part-time employees); or (ii) at least 500 employees (excluding any part-time employees);” Under WARN, employees must have 60 days of notification, with pay, of layoffs so they have time to prepare. After the 60 days, then what severance you can negotiate applies (the 60 day pay period is not in lieu of severence).

How to Negotiate a Severance Package

While there are no laws that govern severance, you still have some leverage because employers want to avoid headaches like litigation. However, it mostly comes down to remaining calm, being cordial, and convincing the person you’re negotiating with that they should be reasonable when it comes to your package. If you’re an executive, the rules of the game are a bit different and outside the scope of this article.

First, severance pay doesn’t refer to only money payouts. Benefits and perks are on the table as well, which is a good thing because medical benefits are a big deal these days. You typically have 18 months of COBRA medical insurance coverage, which merely means you’re allowed to stay on your employer’s medical plan but must pay the whole premium yourself (normally the employer foots the bill on part of the insurance). One of the things you can consider negotiating is whether or not you can stay on the medical plan while you look for a new job. Another option is to ask if you can take your vacation in lieu of payment, which would extend your medical coverage. If they won’t let you, then you’ll probably want to be paid out your vacation, though it’s really a non-concession because most companies will pay out vacation.

You can negotiate the vesting on your various packages, whether it’s the basics like a pension and 401(k) to any stock options you may have been awarded. If you are employed “at will,” which are most people, the employer can terminate you whenever they like, including the day before your retirement fund’s vest or before your stock options can be exercised; try to negotiate to get your packages vested. With regard to stock options specifically, you often have 90 days after your last day of employment to exercise them, you can try to get this extended.

“At Will” employment means you can leave at any time and your employer can terminate you at anytime, but they must have a legal reason and the termination has to be performed legally. They can’t fire you for no reason and you can still negotiate your severance.

Avoid non-competes and waivers that prevent you from suing later on. Non-competes are tricky because you reduce the number of companies you could go work for, which is the last thing you want to do when you lose a job. If you waive the right to sue the company, then you might discover later that your termination was actually the result of discrimination but that you can’t do anything about it because you waived your right to sue. Think of the huge Wal-Mart age and gender discrimination suit [6]

Get an employment attorney to help you review documents and assist in the process. The documents the company will be sending you will be in legalese and you won’t understand most of it. You will probably understand the major points but just like the fine print on a credit card agreement, there’s stuff in there that you won’t expect because you don’t get fired every day. It’s sometimes useful to get the advice of an employment attorney to help you review documents and give you advice on what you should do. This is slightly different than the last suggestion I’ll make, which is that you get legal representation.

Finally, you can always get the representation of an employment attorney, but this should be used as a last resort. If you talk to a lawyer, they’ll tell you that you always need their help or you’ll undervalue yourself or give up a concession you shouldn’t have surrendered. That’s all probably very true, but anytime you bring in lawyers, you take things to a totally different level. Some HR departments, upon hearing legal counsel is involved, may be required to turn it over to their legal department. Representation by legal counsel should be considered the nuclear option.

Good luck!